Challenges Of Islamic Finance Industry

Main competitive pitch of Islamic banking is in Sharia compliant and interest free. But the real business of Islamic banking is producing profit.

governments operating in the complex economic environment of the 21st century must contend with a broad range of risks. Some do so in an adhoc or reactive fashion, responding to risks as they appear, whilst others are proactive, planning in advance the risks that they wish to assume and how they can best manage them. Since it has become clear over the past few years that risk can be financially damaging when neglected, anecdotal and empirical evidence suggests that institutions increasingly opt for formalized processes to manage uncertainties that can lead to losses. Risk can be classified in a number of ways and though we do not intend to present a detailed taxonomy of risk, a brief overview is useful in order to frame my discussion. To begin, risk can be divided broadly into financial risk and operating risk. Financial risk is the risk of loss arising from the movement of a market or performance of a counterparty and can be segregated into market risk (the risk of loss due to movement in market references, such as interest rates, stock prices or currency rates), liquidity risk (the risk of loss due to an inability to obtain unsecured funding or sell assets in order to make payments) and credit risk (the risk of loss due to non-performance by a counterparty on its contractual obligations). A rise in funding costs, an inability to sell financial assets at carrying value or the default by a counterparty on a loan are examples of

Becoming an expert in Islamic economics and finance field is one of my long-term goals in life. I started to organize and made a plan towards achieving that dream since senior high school. The concern towards Islamic economics and finance concept, and its application for society and the country began when I was reading a book entitled Islamic banking-theory and practice. After finishing reading the book, my interest in Islamic economic and finance topics rose and strengthen my own determination to become the expert of Islamic economics and finance. The main principle of Islamic economics and finance which offers the just and ethics in economic activity, poverty alleviation through income distribution mechanism, and prevention of economic and

From foreign policy makers’ perspective, the most significant failure was to not understand the tight coupling between the US and the rest of the developed world. Figure 4 demonstrates the prevalence of financial crises across the world and the number of countries involved. A cursory glance demonstrates the drastic increases following 1970. Evidence existed that coupling in global finance was increasing systemic risk. However, policy makers globally failed to heed the evidence and make meaningful action towards protecting against systemic risk. Thus, policy makers failed to make any meaningful developments in increasing shock absorption capabilities.

With regard to sukuk development, the asset securitisation law in Indonesia is not in line with Shari’ah dictates, as the draft of the asset securitisation law clearly states that securitisation can only be structured through debt. Meanwhile, Malaysia, which is the most active Islamic capital market, has robust regulatory standards as framed by the Securities Commission

Methodology used in this report is explanatory research case study and qualitative research method where data regarding the sukuk defaults and shariah issues in Sukuk Asset-Based and Sukuk Asset-Backed are being collected. From these data collection, the development of theory can be focused through an approach of case studies and this method can relate to the growing issues of sukuk defaults. (Eisenhardt, 1989; Yin, 1994).

Islamic banking refers to a system of banking that complies with Islamic law, also known as Shariah law. The underlying principles that govern Islamic banking are mutual risk and profit sharing between the provider of capital (investor) and the user of funds (entrepreneur). In other words, it ensures an equal contribution for all parties involved, whether in profitability or in case of any loss occurred. Activities that involve interest (riba), gambling (maisir) and speculative trading (gharar) are prohibited (Bank Negara Malaysia, 2010). Islamic banking is interest free banking; making it compulsory to take active part in business profit and loss sharing. Islamic banks prefer to take less risk (Shaikh & Jalbani, 2009)

There are several issues that arise in Islamic finance where the issues includes the lack of expertise in conducting Islamic finance system and also to supervise the system so that it according to Shariah compliant. Besides that, the diversion from conventional products to Islamic product also becomes one of the issue in

This growing practice of Islamic banking will be discussed more fully in a later section as a modern application of usury prohibition.

The Central Bank of the UAE was established in 1980 (Crystal & Peterson,2017). It is the UAE’s highest financial regulator. The Central Bank works with the state by directing changes in Monetary, Banking, and Credit-based policies appropriately. It implements those policies in accordance to the state’s current Financial and Economic needs. Moreover, the Central Bank aims to stabilize the economy and the current exchange rate by maintaining gold and other foreign currency reserves. The UAE Central Bank, “prohibits lending an amount greater than 7 percent of a bank's capital base to any single customer” (United Arab Emirates - Banking System, n.d). Furthermore, Islamic banking in the UAE has shown a boundless level of progress due to no interest fees per Sharia Law. The UAE Islamic Financial Sector was estimated to be worth around 127 Billion US Dollars in 2014, it is also the third largest Islamic market by value after Saudi Arabia and Malaysia (John,2015). In November 2011, the Central Bank introduced the IBAN system, its main purpose was to ease the process of automatic money transfers and improve the accuracy and speed of payment transactions (Standard Chartered Bank of UAE, n.d).

The prosperity and peace of a society much or less depends on its economy. While for the smooth running of both, there are several instructions in Islamic Shariah and allows what is right and forbids what is wrong. When we talk about financial issues, Islamic Shariah strictly condemns Riba. The question may arise why Islam prohibits Riba? While it was already in practice before the advent of Islam and still it is a part of different economic systems throughout the world. It is simply because Islam gives respect to human beings and condemns all the attempts that are harmful and disgraceful for humanity. Therefore, Riba is not only forbidden in Islam but economic experts are also in search of its substitute. Since borrowing on interest rate creates several issues including: less efficient allocation of resources, indebtedness, unemployment and economic instability. While in society it causes injustices, inequity, poverty and imbalance etc. In this paper we are discussing how Riba causes imbalance in the society and instead Riba what Islam demands from its followers.

These Short Essays are partial fulfillment of Paper IE1001 of Part 1 of Certified Islamic Finance Professional (CIFP) [DRAFT V0.4]

Islamic finance within compliance of Sharia law form the core of Islamic banking and have become one of the fastest growing segments of the financial industry, operating in over 75 countries (Cihak,Hesse2008). Islamic finance initially was concentrated in the Middle East and South East Asia, but is now found globally. The roots of Islamic finance stemmed from the efforts of Islamic scholars to identify alternatives to the interest based system that is prohibited and condemned by Allah within the Quran. Islamic finance also prohibits the practice of lending money for investments in tobacco, alcohol, gambling and weapons per Sharia law. In the wake of the global financial crisis however, there has been a renewed interest on the

Islamic banks use a number of non-interest-based finance modes. The use of a mode is dependent on the nature, purpose and size of transactions. In selecting the modes, it is very much the know-how and knowledge of the Islamic banker which comes into play. These modes could be classified as debt type instruments, quasi - debt type Instruments, profit and loss sharing or hybrid instruments.

The Islamic finance industry has been evolving and growing rapidly for the past decade. The recent global financial meltdown has open opportunity to Islamic finance to offer a new outlooks and effective solutions to economics problems. Economists are now looking to the east, learning lessons and seeing advantage of Islamic finance. Since then, serious research on Islamic financial system has been carried out and Islamic financial system has been an interesting area of discussion.